You write: "In other words, even if no one is behaving in an explicitly racist way, a result starkly diffentiated along racial lines can still emerge. How to address that problem is a major issue for the Fed, and this report should be welcomed as the first step in doing so."

I can see how it may be part of the job of the Fed to identify this kind of discriminatory behaviour. But if the underlying cause is lack of effective competition or is racism, why is it the job of the Fed to do something about it? Surely the principal duties of the Fed are to do with prudential regulation and the money supply, and neither seems to be at issue here. Other branches of the Federal Government have relevant jurisdiction if necessary or perhaps this is an area where it is better to let markets take their own time about responding. Would you feel the same way if the discrimination was simply against poor white people? In the UK and in the US there is a depressing belief that if something is unfair or looks wrong, something must be done: but both the law of unintended consequences and cost argue for caution.

As an aside, Erika agrees someone needs to address the issue.

Roger, the Fed, specifically the OCC, is charged with policing the Fair Lending Act which applies to all people, including your poor whites.

"Firstly, why aren't the low-cost lenders lending to blacks as much as they lend to whites?"

What's important here is the rate at which Blacks' mortgage applications are denied at the traditional, large financial institutions thus leading them to the higher priced ripoff shops.

I know the case with Hispanics, is that those expensive shops speak their language. They employ Hispanics who target the hispanic mortgage applicants. Larger institutions don't go that far.

Michelle

this all sounds sensible. A quick web search suggests that it is HUD that is responsible for the Fair Housing Act (including its provisions about non-discrimination in lending) and OCC is responsible for the Equal Credit Opportunity Act (which has similar and I think wider effect) and I cannot find a reference to a separate fair lending act. But both these acts concern discriminatory behavior by a lender, which does not seem to be the issue here.

Similarly I fully support that the Fed should publicise the effective discrimination that is occurring. My only concern is that it is not the job of the Fed then to "do something" to address the structural problem. It is for HUD or OCC to act if there is discrimination within a lender, and (I guess) for the market if it is simply that some lenders are making extra profits by marketing effectively to minority ethnic communities. And from skimming the article Felix cites, I think this is what is intended by the legislation. For example it says:

"The disclosure of lending activity is intended to
help determine whether lenders are adequately serving their communitiesí housing finance needs, to facilitate enforcement of the nationís fair lending laws, and to guide investment activities in both the public and the private sectors. HMDA is implemented by the Federal Reserve Boardís Regulation C. Underlying HMDAís disclosure requirements is a presumption that more publicly available information will improve market performance and help prevent market failures."

Yes, one certainly needs to beware the law of unintended consequences. The last thing anybody wants is a set of onerous restrictions on how much lenders can charge minority clients, leading to said lenders simply shutting up shop in black neighborhoods.

There is a clear trend, it would seem, from the days when the legislation was written. Back then, lenders would behave in explicitly racist ways: they would deny poor blacks loans at a rate much higher than that at which they would deny poor whites loans. Since the act came into effect, that behaviour has ended, and I don't think I'm saying anything controversial when I say that there is a causal relationship there.

Now, the racism is less explicit, and we have to ask ourselves what exactly it was that ended the explicit racism in lending. Was it the mere existence of the act, was it the enforcement of the act, or was it the publication of the data collected as a result of the act? If it's the last one, then we're moving along the right path here. But if it's one of the first two, then maybe more needs to be done at the legislative level.

Felix

We are nearer agreement, but your last paragraph still seems to me to be in "something must be done" mode. If the described behaviour is due to mainstream banks not making the effort to market themselves actively to ethnic (and poor?) borrowers, that is not racism as I conceive it. It may be bad business, it may reflect ignorance and lack of experience of how to market successfully in that kind of difficult environment, and it may be evidence of prejudice based on similar ignorance. But legislative action to correct any of these (even the last least attractive version) seems to me heavy handed. It is a bit like positive discrimination and quotas in university admission -- perhaps justified when the problem is acute and materially affects the whole of society but dubious in its present form in the present environment.

If prejudice based on ignorance is not racism as you conceive it, then what is racism as you conceive it? Let's say that MegaBank has two different mortgage lending arms, one which it generally opens in black neighborhoods and one which it generally opens in white neighborhoods. And that the arm in the black neighborhoods charges more than the arm in the white neighborhoods, even after adjusting for income, creditworthiness and everything else. If you were a legislator and learned about this, would you really want to do nothing?